nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒05‒28
eleven papers chosen by
Thomas Andrén

  1. The Effects of Fiscal Consolidations: Theory and Evidence By Alberto Alesina; Omar Barbiero; Carlo Favero; Francesco Giavazzi; Matteo Paradisi
  2. The relationship between corporate governance and tax avoidance - evidence from Germany using a regression discontinuity design By Kiesewetter, Dirk; Manthey, Johannes
  3. Capital Taxation with Heterogeneous Discounting and Collateralized Borrowing By Nina Biljanovska; Alexandros Vardoulakis
  4. Interactions Between Financial Incentives and Health in the Early Retirement Decision By Pilar Garcia-Gomez; Titus J. Galama; Eddy van Doorslaer; Angel Lopez-Nicolas
  5. The economic distortions of a border-adjusted corporate cash flow tax By McGee, M Kevin
  6. Bonus Taxes and International Competition for Bank Managers By Gietl, Daniel; Haufler, Andreas
  7. Income Creation and/or Income Shifting? The Intensive vs. the Extensive Shifting Margins By Hakan Selin; Laurent Simula
  8. Is there any Induced Demand for Tax Evasion? By Marchese, Carla; Venturini, Andrea
  9. Push and Pull: Disability Insurance, Regional Labor Markets, and Benefit Generosity in Canada and the United States By Kevin Milligan; Tammy Schirle
  10. Macroeconomic Effects of Medicare By Juan Carlos Conesa; Daniela Costa; Parisa Kamali; Timothy J. Kehoe; Vegard M. Nygard; Gajendran Raveendranathan; Akshar Saxena
  11. Are less developed countries more exposed to multinational tax avoidance? Method and evidence from micro-data By Niels Johannesen; Thomas Tørsløv; Ludvig Wier

  1. By: Alberto Alesina; Omar Barbiero; Carlo Favero; Francesco Giavazzi; Matteo Paradisi
    Abstract: We investigate the macroeconomic effects of fiscal consolidations based upon government spending cuts, transfers cuts and tax hikes. We extend a narrative dataset of fiscal consolidations, finding details on over 3500 measures. Government spending and transfer cuts reduce output by less than tax hikes. Standard New Keynesian models match our results when fiscal shocks are persistent. Wealth effects on aggregate demand mitigates the impact of a persistent spending cut. Static distortions caused by persistent tax hikes cause larger shifts in aggregate supply under sticky prices. This channel explains different sizes of multipliers found in fiscal stimuli compared to consolidation plans.
    JEL: E62 H60
    Date: 2017–05
  2. By: Kiesewetter, Dirk; Manthey, Johannes
    Abstract: This paper analyses the relationship between corporate governance and tax avoidance. We use a regression discontinuity design (RDD) in a two-stage instrumental variable and take advantage of the exogenous variation in the index membership around the DAX and MDAX threshold. We suppose the differences in corporate governance result from the valueweighted composition of the market capitalization-based indexes. We find a significant discontinuity in the level of the corporate governance characteristics at the cutoff. The largest MDAX firms show stronger corporate governance characteristics compared to the smallest DAX firms. Our analysis shows that strong corporate governance characteristics drive down the effective tax rate for the DAX firms. This paper contributes to existing research by establishing a causal relationship between governance and taxes. This research aims to highlight the wide-ranging effects of institutional investors, which channel in corporate policy, in our case tax management.
    Keywords: Tax Avoidance,Corporate Governance,RDD,Regression Discontinuity Design
    JEL: H20 H25 H26 M41 M48
    Date: 2017
  3. By: Nina Biljanovska; Alexandros Vardoulakis
    Abstract: We study optimal long-run capital taxation in a closed economy with heterogeneity in agents' time-discount factors where borrowing is allowed but restricted by a collateral constraint. Financial frictions distort intertemporal optimization margins and the tax system serves a dual role: first, it is used to finance government consumption; second, it serves to alleviate the distortions arising from the binding collateral constraint. The discrepancy between the private and the social discount factors pushes for a subsidy on capital, while the discrepancy introduced by the collateral constraint pushes for a tax in the long-run. When consumption smoothing motives are muted, the two effects counter-balance each other and the tax is zero. With finite elasticity of intertemporal substitution, the second discrepancy dominates and the tax on capital income is positive in the long-run.
    Keywords: Ramsey taxation ; Collateral constraint ; Heterogeneous discount factors ; Tax on capital
    JEL: E60 E61 E62 H21
    Date: 2017–05–05
  4. By: Pilar Garcia-Gomez (Erasmus University Rotterdam, the Netherlands); Titus J. Galama (University of Southern California, US); Eddy van Doorslaer (Erasmus University Rotterdam, the Netherlands); Angel Lopez-Nicolas (Universidad Politecnica de Cartagena, Spain)
    Abstract: We present a theory of the relation between health and retirement that generates testable predictions regarding the interaction of health, wealth and financial incentives in retirement decisions. The theory predicts (i) that wealthier individuals (compared to poorer individuals) are more likely to retire for health reasons(affordability proposition), and (ii) that health problems make older workers more responsive to financial incentives encouraging retirement (reinforcement proposition). We test these predictions using administrative data on older employees in the Dutch healthcare sector for whom we link adverse health events, proxied by unanticipated hospitalizations, to information on retirement decisions and actual incentives from administrative records of the pension funds. Exploiting unexpected health shocks and quasi-exogenous variation in nancial incentives for retirement due to reforms, we account for the endogeneity of health and financial incentives. Making use of the actual individual pension rights diminishes downward bias in estimates of the effect of pension incentives. We find support for our affordability and reinforcement propositions. Both propositions require the benefits function to be convex, as in our data. Our theory and empirical findings highlight the importance of assessing financial incentives for their potential reinforcement of health shocks and point to the possibility that differences in responses to financial incentives and health shocks across countries may relate to whether the benefit function is concave or convex.
    Keywords: pensions; health; retirement; disability; health investment; lifecycle model; health capital
    JEL: C33 D91 H55 I10 I12 J00 J24 J26 J45 D91
    Date: 2017–04–27
  5. By: McGee, M Kevin
    Abstract: This paper explores the efficiency distortions under two types of destination-based corporate cash-flow taxes. Auerbach and Devereux (2015) have shown that a sales-apportioned cash-flow tax will distort consumer prices; this paper shows that those distortions are generally quite small, and are limited solely to industries in which economic profits are earned, and consump- tion is already significantly distorted. This paper also shows that a border-adjusted cash-flow tax will distort consumption decisions that cross borders, such as travel, higher education, and retirement location. In addition, it would affect labor migration decisions, especially for mi- grants who plan either to migrate only temporarily, or to remit a substantial fraction of their earning back to their home country.
    Keywords: International Corporate Taxation, Cash Flow Tax, Destination-Based Cash Flow Tax, Formula Apportionment
    JEL: H21 H25 H31 H32
    Date: 2017–04–05
  6. By: Gietl, Daniel (University of Munich); Haufler, Andreas (University of Munich)
    Abstract: We analyze the competition in bonus taxation when banks compensate their managers by means of fixed and incentive pay and bankers are internationally mobile. Banks choose bonus payments that induce excessive managerial risk-taking to maximize their private benefits of existing government bailout guarantees. In this setting the international competition in bonus taxes may feature a \'race to the bottom\' or a \'race to the top\', depending on whether bankers are a source of net positive tax revenue or inflict net fiscal losses on taxpayers as a result of incentive pay. A \'race to the top\' becomes more likely when governments\' impose only lax capital requirements on banks, whereas a \'race to the bottom\' is more likely when bank losses are partly collectivized in a banking union.
    Keywords: bonus taxes; international tax competition; migration;
    JEL: H20 H87 G28
    Date: 2017–05–20
  7. By: Hakan Selin (IFAU - Institute for Evaluation of Labour Market and Education Policy); Laurent Simula (GAEL - Grenoble Applied Economics Laboratory - UPMF - Université Pierre Mendès France - Grenoble 2 - INRA - Institut National de la Recherche Agronomique)
    Abstract: The optimal tax literature has modelled income shifting as a decision along the intensive margin. However, income shifting involves significant fixed costs, which give rise to an important extensive margin. In this article, we show that the distinction between the intensive and extensive margins has crucial policy implications. We consider a population of agents differing in terms of productivities, labor supply elasticities and costs of income shifting. In the extensive margin model the distinction between income creation and income shifting breaks down and the social planner should not in general combat shifting. In particular, numerical simulations of a linear tax model suggest that the social planner should allow for income shifting if elasticities are heterogeneous in the population. We demonstrate that the qualitative conclusions drawn from the simple linear tax model carry over to a model with two fully non-linear tax schedules.
    Keywords: Income Shifting, Optimal Taxation, Labor Income
    Date: 2017–04–07
  8. By: Marchese, Carla; Venturini, Andrea
    Abstract: In this paper we consider amoral taxpayers who access amoral tax preparers in order to receive help in evading taxes. Taxpayers are aware of having a biased perception of the audit probability, but are unable to correct such bias without the help of a tax preparer. The market for tax preparation, characterized by imperfect competition, is described according to the conjectural variation approach. We show that according to the direction of the bias the tax preparer can suggest either a larger or a smaller evasion with respect to the one that the taxpayer would have implemented without the advice, resulting in an evasion smaller or larger than that observed in tax reports of unbiased taxpayers. Such ambiguity provides a motivation for the ambivalent attitudes of tax administrations towards tax preparers. It also turns out that sanctions on taxpayers are more effective than sanctions on tax preparers in order to deter tax evasion.
    Date: 2017–05
  9. By: Kevin Milligan; Tammy Schirle
    Abstract: Disability insurance take-up has expanded substantially in the past twenty years in the United States while shrinking in Canada. We empirically assess these trends by measuring the strength of the ‘push’ from weak labor markets versus the ‘pull’ of more generous benefits. Using an instrumental variables strategy comparing benefit changes across country, age, and year, we find that both benefits and regional wages matter. Simulations suggest that the upswing in disability insurance take-up in the United States would be reversed, dropping the caseload by one third, if benefits and wages had followed the growth path observed in Canada.
    JEL: H53 I38 J21
    Date: 2017–05
  10. By: Juan Carlos Conesa; Daniela Costa; Parisa Kamali; Timothy J. Kehoe; Vegard M. Nygard; Gajendran Raveendranathan; Akshar Saxena
    Abstract: This paper develops an overlapping generations model to study the macroeconomic effects of an unexpected elimination of Medicare. We find that a large share of the elderly respond by substituting Medicaid for Medicare. Consequently, the government saves only 46 cents for every dollar cut in Medicare spending. We argue that a comparison of steady states is insufficient to evaluate the welfare effects of the reform. In particular, we find lower ex-ante welfare gains from eliminating Medicare when we account for the costs of transition. Lastly, we find that a majority of the current population benefits from the reform but that aggregate welfare, measured as the dollar value of the sum of wealth equivalent variations, is higher with Medicare.
    JEL: E21 E62 H51 I13
    Date: 2017–05
  11. By: Niels Johannesen; Thomas Tørsløv; Ludvig Wier
    Abstract: We use a global dataset with information on 210,000 corporations in 102 countries to investigate whether cross-border profit shifting by multinational firms is more prevalent in less developed countries. We propose a novel technique to study aggressive profit shifting and improve the credibility of existing techniques.Our results consistently show that the sensitivity of reported profits to profit-shifting incentives is negatively related to the level of economic and institutional development. This may explain why many developing countries opt for low corporate tax rates in spite of urgent revenue needs and severe constraints on the use of other tax bases.
    Keywords: International business enterprises, Tax evasion, Taxation
    Date: 2016

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